Estate planning can be daunting, especially when you consider the various intertwining factors. This includes choosing beneficiaries, allocating your estate to these beneficiaries, and choosing the right financial planners and legal team to help you execute your estate plan after you pass away. One commonly asked question is whether trusts are necessary for your estate plan. In this article we will discuss various factors to help you determine whether a trust is right for you.
Dispelling common trust misconceptions
Trusts are commonly mistaken as a tool used only by extremely wealthy individuals. However, trusts can be set up by any individual who has money they would like to give to a family member or other individual, without having to go through many legal routes.
Another misconception is that trusts guarantee avoiding probate. While the assets within your trust will most likely evade probate, the assets not listed within the trust will not be exempt from probate and will have to follow regular legal proceedings once you pass away. Therefore, it is extremely important that your trust contains all the assets you wish to pass on to your various beneficiaries.
What are the benefits of trusts?
Setting up trusts have many benefits that could help you and your family better manage your estate. These benefits include:
- Avoiding taxes, or having reduced taxation
- Avoiding probate
- Protecting the assets within your estate
- Being able to manage your assets whilst you are alive, and plan for a seamless transition of assets in the event you pass away
Do you need a trust?
In order to determine whether a trust makes financial sense for you and your family, you must discuss all your assets with your financial planner. This includes real estate, retirement and investment accounts, personal property, and life insurance. Furthermore, you must think about the people or entities (e.g., charities) which you intend to distribute your assets to, whether that be while you are alive or after your death.
With your financial planner, you can decide whether it is best for your trust to go into effect now or after you pass away. There are also options to make your trust revocable, so that you can change the details of the trust at any time, or irrevocable, which means it cannot change once established.
Another consideration is how long you would like your assets to be held within the trust until distribution to your beneficiaries. For example, a person may set up a trust that their children can only access once they are in their 30s. These time considerations are flexible and can be discussed with your financial planner to create the best solution for you.
Choosing your Trustees
Once you have decided whether a trust makes financial sense for you and your family, you must decide who your trustees are, i.e. those who will manage your trust’s assets and honor your trust’s provisions. You can choose yourself as a trustee, or another individual. Trustees should be someone who you can believe in to act in the best interests of the trust, who understands how to manage finances, and is willing to devote time to oversee the trust and make distributions as required. For example, some people are able to make a relative or friend a trustee as they understand your financial situation and are close to your beneficiaries. You can also assign a secondary or co-trustee to help the primary trustee with distributions and management. Another option is having a corporate trustee who is experienced in managing trusts.
Talk to a financial advisor and estate planner to discuss your trust options, and whether it is a right fit for you and your financial needs!